The uranium exploration and development company Denison Mines Corp (DNN), which is known for its Wheeler River uranium project, rallied 55.1% over the past month to close yesterday’s trading session at $1.14. The unusually cold weather in the United States this winter is driving a huge demand for electricity. This is being met in-part by nuclear power plants that require uranium to generate electricity.

Nevertheless, DNN has declined 23.2% since hitting its 52-week high of $1.81 on February 17, 2021. This can be primarily attributed to the company’s weak financials. Also,  DNN’s projects are still in their early stages. Its flagship project, the Wheeler River, is still in its evaluation and environmental assessment stage.

Here are the factors that we think could influence DNN’s performance in the near term:

Selling Shares to Fund Developmental Activities

DNN  announced on March 3, 2021 that it had closed its private placement of common shares, which  qualify as ‘flow-through shares’ for purposes of the Income Tax Act (Canada). DNN is expected to use the proceeds of the offering  to fund  exploration expenses related to its  Canadian uranium mining exploration projects in Saskatchewan.

Last month, DNN completed a  public offering of 31,593,950 units of the company at $0.91 per unit, yielding  proceeds of roughly $28.75 million. The proceeds  are expected to  fund evaluation and environmental assessment activities in support of  its proposed Phoenix in-situ recovery uranium mining operation in its  Wheeler River Uranium Project, as well as for general working capital purposes.

Unfavorable Recent Financials

DNN’s revenues have declined more than 21% year-over-year to C$2.74 million for the third quarter ended September 30, 2020. The company’s net loss for the quarter was C$5.48 million and its comprehensive loss was C$5.48 million.

Stretched Valuation

In terms of forward enterprise value/sales, DNN’s 80.20x is significantly higher than the industry average 2.75x. In terms of forward price/sales, the stock is trading at 75.05x, which is much higher than the industry average 1.36x.

Wall Street analysts expect the stock to hit $0.85 in the near term, which indicates a potential decline of 31.1%.

POWR Ratings in Sync with DNN’s Bleak Outlook

DNN has an overall rating of D, which equates to Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. Among these categories, DNN has a D grade for Sentiment, which is in sync with the unfavorable analyst sentiment.

The stock has an F grade for Value, which is consistent with its much-higher-than-industry-average valuation ratios.

Click here to access DNN’s grades for Growth, Momentum, Stability and Quality as well.

DNN is ranked #54 of 57 stocks in the F-rated Miners – Diversified industry.

Better than DNN: Click here to access 10 other top-rated stocks in the same industry.

Bottom Line

The company has yet to complete its flagship project, the Wheeler River project. , DNN has also failed to impress investors with its financials despite announcing  its discovery of high-grade uranium  at the northwest of Phoenix uranium deposit. Because the stock is currently trading at premium valuations in the absence of  sufficient growth potential, we think it’s better to avoid the stock now.

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K.I.S.S. for the March Stock Market

DNN shares were trading at $1.02 per share on Thursday afternoon, down $0.12 (-10.81%). Year-to-date, DNN has gained 57.65%, versus a 0.48% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

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